Dire Prognosis

Buyer of four Tenet Hospitals leaves doctors fearful for Countys health-care future

Illustration by Bob AulDr. Kali P. Chaudhuri describes himself as a visionary whose purchase in the next few weeks of four Orange County hospitals will come as a shaft of light through the gathering health-care darkness. But many of his former patients and employees know Chaudhuri as the man whose medical management is the darkness itself, leaving patients stranded without health care—and doctors, technicians and medical suppliers to pick up the pieces.

"An awful lot of us know about Chaudhuri," says Dr. Michael Fitzgibbons, who sits on the board of Western Medical Center in Santa Ana. "Half the doctors in this county have either suffered financially or have patients who have been affected by the pain he's caused. And now he's back."

Within days, Chaudhuri's Costa Mesa company Integrated Healthcare Holdings Inc. (IHHI) is set to close a $72 million deal for four Tenet Healthcare Systems hospitals: Western Medical Center Anaheim, Chapman Medical Center Orange, and Western Medical and Coastal Communities Hospital in Santa Ana.

It's a sale many view with disbelief. They recall what happened when Chaudhuri, under his namesake companies KPC Global and KPC Management, purchased a network of Southern California clinics from a failing MedPartners back in 1999. Fourteen months after the buyout, all 81 clinics were closed, leaving unpaid bills and salaries, mounting debt, and doctors scrambling—and legally obligated—to find new sources of care for some 250,000 stranded patients. Most of those patients were even deprived of their medical records; many ended up in local emergency rooms as a last resort.

It was the health-care equivalent of a train wreck, and his critics say Chaudhuri was the engineer.

Fitzgibbons was one of the physicians caught in what he calls the "KPC debacle." For him and many other doctors who remember it, the prospect of Chaudhuri running their hospitals is the worst of all possible scenarios.

"We know he doesn't pay," said Fitzgibbons. "We know he doesn't back the physicians. He's got a new company now [IHHI], and as far as I can tell, it's the same old model as those failed KPC clinics. But this time, he'll be in control of hospitals."

So vehemently do they oppose Chaudhuri's takeover of the four Tenet hospitals that in October Fitzgibbons and fellow physicians took to the streets with picket signs. More than 70 doctors from the targeted hospitals formed their own acquisition group and offered Tenet a competing bid. One of those physicians, Chapman Hospital board member Dr. John Luster, says their offer topped Chaudhuri's in upfront cash and absolute dollars and was backed with more stable loan guarantees and a solid business plan that put practicing doctors, "not a venture capitalist with an M.D.," in charge of the hospitals.

It's no secret that Tenet—which runs more than 100 hospitals nationwide, 35 in California—needs to raise cash fast. Revelations of overbilling, unnecessary surgeries and doctors' kickbacks have brought a chain of lawsuits and regulatory fines that have bloodied the health-care giant. Hence the need for cash.

But why sell to Chaudhuri's IHHI?

"IHHI represented the most qualified bidder, in the best interests of Tenet and the community," said Steve Campanini, a Tenet spokesman. Campanini said all other details of the bid process are confidential.

But critics of the deal say Tenet—which will continue to run several county hospitals—is simply afraid of competing against a well-organized group of doctors.

"Tenet may be taking some very calculated steps here to position itself against such a threat," says Jeremy Hogue of Sovereign Healthcare Consultants in Newport Beach, a company that represented some of the doctors in their failed attempt to buy the hospitals. "Remember, Tenet will still own and operate five other competing hospitals in the county. Even under financial duress, they're not about to hand over major medical institutions to a bunch of doctors they may have to compete against tomorrow—not only for profits, but also for quality services, patient loyalties and professional staffing. Chaudhuri may present less of a challenge to them along these lines."

"If the Chaudhuri deal goes through," Luster predicted, "Chapman Medical is gone. And once again, it'll be the patients who will suffer the most."

Few doctors—and fewer reporters—have met Chaudhuri. Intensely private, he lives on a secluded estate near Hemet at the end of a street that bears his name. He retains an interest in three Inland Empire hospitals, just a few of his numerous financial holdings, medical and otherwise.

Raised in Bombay amid the wealth and privilege of a high-caste Indian family, Chaudhuri, 59, attended Calcutta University, where he trained as an orthopedic surgeon. In California, he became a millionaire many times over. He is described as driven, a doctor who traded his scalpel for the pen of a venture capitalist. Those who have met him say he is exceedingly charming, adept at deflecting criticism with a smile and a prediction of better days ahead.

"Ideas just roll off his tongue," one doctor said recently. "You have to earn an audience with Chaudhuri. But once you're there, he'll fill you with visions and light. But I'm not sure whether he listens much."

"I play chess four or five moves ahead," said another doctor at odds with the physician-turned-businessman. "Chaudhuri plays 15 moves ahead. I don't often agree with his methods, but I'm always in awe of him."

In a recent interview, Chaudhuri dismissed criticism of him and the Tenet deal as "sour grapes."

"These doctors are understandably upset. They had their own offer. It obviously fell short. And I don't argue with their suffering under KPC," he says. "But why did it happen? [MedPartners] was already in a downward spiral and losing $10 million a month. What we accomplished there was a soft crash landing instead of a hard crash landing for everyone involved. It was beyond me to stop it. In that sense, I was a victim, too."

But in their book Critical Condition, Pulitzer Prize-winning investigative reporters Don Bartlett and James Steele paint a different picture of the clinics' disintegration under Chaudhuri. They recount reckless cost cutting, inept record keeping, patient dumping and loss of services due to unpaid bills that led to a medical "meltdown" resulting in discontinuity of care and, in some cases, the deaths of patients. "Nevertheless," Bartlett and Steele write, Chaudhuri "continued to put a positive spin on KPC, just as he had done from the beginning. Profitability was always just around the corner."

Chaudhuri sees the Tenet deal as a way to vindicate himself. He is, he believes, the right man with the right plan to turn around four hospitals. At the heart of that plan is something Chaudhuri calls an "integrated management model" that will give doctors quick access to medical information.

"I am not running; I am not hiding," he says. "If I have done something wrong, would I come back here? I am facing this head-on. I am answering all questions."

He acknowledges he's been involved in some 30 lawsuits but says he has "never lost a judgment."

When I ask him about Caremark Inc. vs. KPC Global Care, he says I'll have to speak to his attorney.

The Caremark case displays Chaudhuri's preternatural ability to ride the ups and downs of any business cycle. It was from Caremark, then doing business as MedPartners, that Chaudhuri purchased 81 clinics in 1999. In their lawsuit, Caremark says Chaudhuri never made even one payment on his $9 million promissory note to the seller. When KPC Global crashed and burned in November 2000, Caremark says it raced to retrieve its investment—but too late. By then, all 81 clinics were closed and $30 million in company assets had disappeared. Others closer to Chaudhuri had gotten there first—Tenet, lawyers and a few of KPC's high-ranking officials.

A bankruptcy judge subsequently awarded Caremark a $4.2 million judgment against KPC, by this time a husk of a company depleted of its assets. Chaudhuri offered to buy Caremark's judgment for just under $500,000. Caremark sized up its options and took the money. The move effectively made Chaudhuri a creditor against himself.

What happened to KPC Global's assets on the company's path toward insolvency may never be unraveled. Speaking to a Riverside Press-Enterprisereporter, the bankruptcy judge said his court was unable to track the many convoluted transfers of funds between what had been MedPartners and Chaudhuri's numerous companies.

The collapse of Chaudhuri's health-care empire continued to reverberate. KPC Medical Management and Chaudhuri Medical Corporation are tied up in bankruptcy court on a separate matter; 1,000 creditors are knocking on those doors. In late 2002, Bartlett and Steele report, Chaudhuri suddenly dumped the Inland Global Med Group, stranding another 50,000 patients and leaving 240 physicians with more than $6 million in unpaid bills.

Chaudhuri holds financial interests in various other enterprises in and outside the medical arena as well, including supply houses and real-estate firms that had dealings with his medical groups but were sufficiently insulated from attachment under bankruptcy laws. Even his sprawling Hemet estate is held in trust out of the reach of creditors.

Through it all, Chaudhuri keeps smiling, promising and projecting an image of optimism, success and mission. It's like watching Tony Robbins and Mother Teresa in one well-dressed evangelist. In one breath, he is "integrating doctors into the decision-making process" of his "ground-breaking" medical model. In the next, he is extolling doctors who stick to what they do best—treat patients—"and let the managers manage." He says his failures have only made him better prepared to succeed. He speaks of "rescuing his reputation"—but then says, "This is not about me, not my personal glory. I am only doing my part to reorder this system . . . to benefit the patient."

At the end of the interview, Chaudhuri asks me to "judge me by what I do, not by what I say."

"It's one thing to lose a restaurant, or a hardware store, or even a clinic in your community," says Dr. Jeff Kaufman, a board member at Western Medical and a leader in the doctors acquisition group. "But we're not talking about widgets here. We're providing life-supporting medical care out of these facilities for thousands of patients who need us to be here day in and day out. If a hospital folds, it's not just another failed investment to write off and move on. It's a real-life catastrophe for real, live people."

"I'm only one man trying to do his part," says Chaudhuri. "I'm not Gandhi, really."

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